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Policy Monitor—Bonding Requirements for U.S. Natural Gas Producers

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  • Lucas W. Davis

Abstract

Natural gas producers are constantly making tradeoffs between money, time, and environmental risk. The private costs and benefits of drilling are realized immediately, but the external costs are not. This means that by the time external costs are well understood, producers may no longer exist or may not have sufficient resources to finance necessary cleanups or to compensate those who have been adversely affected. Because producers do not face the total cost of potential external damages, they may take too many risks. This article discusses alternative regulatory approaches for mitigating moral hazard in U.S. natural gas production. Particular emphasis is given to bonding requirements, which have tended to receive less attention from policy makers than other approaches but have a long history. Although the use of bonding has important limitations, this approach is quite well suited to addressing many of the environmental risks in this market. (JEL: K32, L71, Q48, Q58)

Suggested Citation

  • Lucas W. Davis, 2015. "Policy Monitor—Bonding Requirements for U.S. Natural Gas Producers," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 9(1), pages 128-144.
    • Handle: RePEc:oup:renvpo:v:9:y:2015:i:1:p:128-144.
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    File URL: http://hdl.handle.net/10.1093/reep/reu015
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    Citations

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    Cited by:

    1. Steven Nelson & Jonathan M. Fisk, 2021. "End of the (Pipe)Line? Understanding how States Manage the Risks of Oil and Gas Wells," Review of Policy Research, Policy Studies Organization, vol. 38(2), pages 203-221, March.
    2. Zhongmin Wang & Qing Xue, 2016. "The Market Structure of Shale Gas Drilling in the United States," Economics Bulletin, AccessEcon, vol. 36(2), pages 793-801.
    3. Lange, Ian & Redlinger, Michael, 2019. "Effects of stricter environmental regulations on resource development," Journal of Environmental Economics and Management, Elsevier, vol. 96(C), pages 60-87.
    4. Weber, Jeremy, 2021. "Bonding Requirements for Oil and Gas Wells in Pennsylvania: Cost-Based Recommendations," MPRA Paper 110035, University Library of Munich, Germany.
    5. Farrer, Benjamin & Holahan, Robert & Shvetsova, Olga, 2017. "Accounting for heterogeneous private risks in the provision of collective goods: Controversial compulsory contracting institutions in horizontal hydrofracturing," Journal of Economic Behavior & Organization, Elsevier, vol. 133(C), pages 138-150.
    6. Kim, Byung-Cheol & Oliver, Matthew E., 2017. "Taming drillers through legislative action: Evidence from Pennsylvania’s shale gas industry," Resource and Energy Economics, Elsevier, vol. 50(C), pages 15-35.
    7. Weber, Jeremy G. & Ercoli, Thomas & Fitzgerald, Will & Nied, Paige & Penderville, Molly & Raabe, Eric, 2021. "Identifying the end: Minimum production thresholds for natural gas wells," Resources Policy, Elsevier, vol. 74(C).
    8. Catherine Hausman & Ryan Kellogg, 2015. "Welfare and Distributional Implications of Shale Gas," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 46(1 (Spring), pages 71-139.
    9. Eyer, Jonathan, 2018. "The effect of firm size on fracking safety," Resource and Energy Economics, Elsevier, vol. 53(C), pages 101-113.
    10. Simone Marsiglio & Nahid Masoudi, 2022. "Reclamation of a resource extraction site: A differential game approach," Metroeconomica, Wiley Blackwell, vol. 73(3), pages 770-802, July.
    11. Aghakazemjourabbaf, Sara & Insley, Margaret, 2021. "Leaving your tailings behind: Environmental bonds, bankruptcy and waste cleanup," Resource and Energy Economics, Elsevier, vol. 65(C).

    More about this item

    JEL classification:

    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law
    • L71 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Hydrocarbon Fuels
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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